British Chamber of Commerce Cuts Forecasts

The British Chamber of Commerce (BCC) today announced cutting its outlook for the UK economy. It seems to be more pessimistic than it was in the second quarter when the (above) survey was conducted. At that time the various survey metrics were reasonably firm – stronger for manufacturing than for services- and more or less moving sideways in terms of their momentum or profiles.

Over eight quarters all manufacturing businesses were doing better on all the metrics in the table and over four quarters only two, export sales and firms operating at full capacity showed declines. Service sector firms were showing more wear and tear undoubtedly because Brexit has been hitting the financial sector much harder. A lower pound sterling was able to prop up manufacturing but the service sector in finance was suffering the departure of businesses that would no longer be viable if anchored outside the domain of the EU in a post Brexit world. As a result the UK service sector reported declines in the all survey metrics except for export sales over eight quarters. That carnage has abated over four quarters. Profits confidence is lower by a hair while domestic orders and turnover confidence are both flat and that is after logging substantial declines over eight quarters.

The new BBC forecasts see growth at 1.1% in 2018 down from 1.3% previously. In 2019 growth is only shaved to 1.3% from 1.4% and for 2020 the growth projection of 1.6% is left unchanged. Export uncertainly is cited by the forecast group and the high cost of doing business in the UK also cited as an issue. The forecasts are not reduced by much but they are trimmed from an already-weak profile. The failure of the UK authorities to clarify the future under Brexit is blamed for investment reduction although the unemployment rate continues to hover at or near modern day lows. The BCC sees the BOE continuing to hike rates and projects a rate level of 1.25% by 2020. Despite this, one commenting BCC official refers to growth as set to progress at a snail’s pace.

The BBCs own reduced views come as the IMF has stepped into the picture to warn of the impact of a no –deal Brexit noting that there would be substantial costs associated with such a break. Austria and Germany have agreed that a hard Brexit is to be avoided.

Much of this may be in response to Theresa May’s own hard line within her own administration. She has warned that if her party does not accept the plan she has formulated the UK will in fact face a break with the EU with no trade deal that would be extremely disrupted. Last week the British government released a paper describing what sort of challenges people would face in the event of a Brexit with no trade deal.

Throwing his own hat into the ring of controversy, the mayor of London, Sadiq Khan, has called for another referendum on Britain’s EU membership. He blamed the Prime Minister’s negotiating techniques for creating a confusing and extended deadlock in negotiations.

It is clear from all of this that the administration of Theresa May is under a lot of pressure. Last week there were reports of a cabal in her party seeking to replace her. But she has an unenviable task. And much as people are upset by what she is doing, given the mandate to walk down this difficult road, there is no one to replace her. As divided as the UK is on this issue about what to do there really is no one who wants to replace PM May and take over this unenviable task and sit in her hot seat. So what we see is a lot of griping and saber rattling, but little real movement or action to replace her. It may be that once the Brexit deal is struck and the negotiating is over PM May will be replaced. But that is a matter for another day. For now it is Theresa May who will ride this tiger.

But for now there simply seems to be a peak level of consternation about Brexit. The UK is being warned to get a deal, the EU negotiator says a deal is possible if the UK is realistic. Austria and Germany chimed in that a hard Brexit would be bad choice. The IMF warns of the severe consequences of a hard break and Theresa May argues that it is her way or the hard way. The mayor of London (of course!) want to play HG Wells, and turn back the dials on the time machine.

The UK has just taken the step of extending the stay of Mark Carney at the central bank. Clearly events and risks seem to be developing fast and the Brexit timetable is coming under pressure. And, while there are the trappings of progress and evidence of enhanced preparedness. nothing is settled until it is signed sealed and delivered. The longer it takes to form an agreement the more that the British economy is likely to be harmed. Time is of the essence.